Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act

Benos, Evangelos; Payne, Richard; Vasios, Michalis

Abstract

We use proprietary transaction data on interest rate swaps to assess the effects of centralized trading, as mandated by Dodd-Frank, on market quality. Contracts with the most extensive centralized trading see liquidity metrics improve by between 12% and 19% relative to those of a control group. This is driven by a clear increase in competition between dealers, particularly in US markets. Additionally, centralized trading has caused inter-dealer trading in EUR swap markets to migrate from the US to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

Citation

Benos, E., Payne, R., & Vasios, M. (2020). Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act. Journal of Financial and Quantitative Analysis, 55(1), 159-192. https://doi.org/10.1017/S0022109018001527

• Journal Article Type: Article
• Acceptance Date: Aug 18, 2018
• Online Publication Date: Dec 3, 2018
• Publication Date: 2020-02
• Deposit Date: Apr 23, 2020
• Publicly Available Date: Apr 28, 2020
• Journal: Journal of Financial and Quantitative Analysis
• Print ISSN: 0022-1090
• Electronic ISSN: 1756-6916
• Publisher: Cambridge University Press
• Peer Reviewed: Peer Reviewed
• Volume: 55
• Issue: 1
• Pages: 159-192
• DOI: https://doi.org/10.1017/S0022109018001527
• Keywords: Economics and Econometrics; Accounting; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/4329827
• Publisher URL: https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/centralized-trading-transparency-and-interest-rate-swap-market-liquidity-evidence-from-the-implementation-of-the-doddfrank-act/C2032B8471AB30FEB1FE57122E226648